Inheritance Tax Eases

3rd January 2017

H&H Land and Property have welcomed a new measure announced by the Government, which will be introduced in April 2017, and will increase the Nil Rate Band Threshold payable on death.

This is a prime opportunity to avoid paying Inheritance Tax (IHT) at the current punishing rate of 40%.  This can be achieved if businesses are structured correctly and receive the specialist guidance on how best to achieve this.

Helen Russell, Associate Director and Chartered Surveyor based in the Durham Office comments:  “Obviously, this is very dependent on a careful examination of each business and its family circumstances, but broadly speaking the following principles apply.

“Individuals with direct descendants who have an estate – including a main residence – with total assets above the IHT threshold (or nil-rate band) of £325,000 may be entitled to another £100,000.  This would result in a £425,000 nil rate band.  However, this is only available if the main residence is to be inherited by the linear descendants of the present owner.”

As with the current existing nil-rate band, any unused nil-rate band will be able to be transferred to a surviving spouse or civil partner.

The scheme allows for an increase in the new addition to the threshold every year, for 4 years.  This will be introduced as follows:

  • £100,000 in 2017 to 2018
  • £125,000 in 2018 to 2019
  • £150,000 in 2019 to 2020
  • £175,000 in 2020 to 2021

It will then be increased in accordance with the Consumer Prices Index (CPI) from 2021 to 2022 onwards.

It is understood that the existing nil-rate band will remain at £325,000 from 2018 until 2021.

The object of this measure is to reduce the burden of IHT for families with an Estate value of less than £2,000,000, by making it easier to pass on the family home to linear descendents without a tax charge of up to 40%.

The measure will be introduced in transfers on and after 6 April 2017.  It will not however, reduce the tax payable on lifetime transfers that are chargeable as a result of death.

Helen continues: “Again, the scheme requires tailoring to the circumstance of each family, and prior advice on setting up an inheritance-tax-friendly business is essential.